You may ask, what is Servicing Abuse?
It's a very real but underreported mortgage problem in this country yet
one that every homeowner
should be aware of. EMC, a
subsidiary of Bears Stearns, one of the nation's largest underwriters of
residential mortgages (mostly subprime) is currently under investigation
by the FTC for continued reports by consumers of servicing abuse.
Mortgage servicers operate in the industry after-the-fact. They
take on a function that a lender doesn't want - the backroom functions
of handling payments, escrow accounts, annual statements, dealing with
borrowers, collections, etc. The perpetrators of the loan
servicing scam acquire the servicing rights to loans that other
companies have already made.
These situations are not errors, mistakes or situations where a
servicer's managers or employees
failed to do their jobs. Their
systems are well-designed and state-of-the-art in terms of analytical
technology that helps them choose and process their victims. These
scams generate enormous profits from a business that is difficult to
run, people and litigation intensive and normally only marginally
profitable. Many have failed and been acquired (Fairbanks bought
several).
What you Must Understand...
You, the borrower are not their customer. Lending companies and
investors are their customers. Most of the borrowers that fall
victim to these abuses are classified as "subprime" borrowers (borrowers
that either because of credit or income cannot qualify for a
conventional loan). The vast majority of "subprime"
borrowers are not well off enough to fight when abuses do take place.
The path toward losing your home to this scam is actually quite simple.
The first phase is designed to fabricate the default and typically
beings with one or a combination of ways to arm the servicer's records
with false data:
-
When the servicer decides to manipulate the date the payment was
received in order to artificially create a late payment.
-
When the servicer doesn't post payments made or improperly applies them
-
When the servicer applies part of the payment to something other than
principal and interest and creates a partial late payment or deficiency
-
When the services decides to "force place" an insurance policy on the
property by claiming the homeowner has not provided proof of insurance.
-
When the servicer pays your property taxes late, the adds their late
penalty to your account without your knowledge.
Any or all of these processes result in at least one month of the
account being past due and a negative note is made in the credit report
(which effectively prevents the borrower from refinancing).
If the borrower has anything more than about 10-15% equity in the
property, it is to the servicer's advantage at this point to not
aggressively attempt to collect. In fact, if the borrower makes
contact, the servicer will engage in delay tactics to avoid resolving
the problem in time to prevent default. If the equity position is
considerably less than 10%, the servicer does not have as much leverage,
nor is the opportunity as great and they will typically be more
aggressive in collection efforts and more willing to keep the loan in
force.
In the case of force-placed insurance, it is to the servicer's advantage
to ignore the borrower and any proof of insurance as long as possible,
again to keep the borrower's credit status in a negative light and to
maintain their relationship with the insurer they contract with. These
policies are extremely profitable because they provide absolutely no
coverage for the homeowner. They protect ONLY the value of the
loan if the property is destroyed.
If the servicer has analyzed the opportunity and marked the property for
default and recovery, the next payment received will be rejected as
being insufficient. If it is accepted, the application of the
funds leaves the loan sixty days past due. Typically the scam now
moves toward formal legal notice of acceleration in order to coerce the
borrower into signing a highly profitable forbearance agreement to
somehow "save the home". The servicer rolls in thousands of
dollars in penalties and an incomprehensible combination of legitimate
and illegitimate fees into the agreement and the homeowner is left with
no choice but to sign it or lose their home. The amount demanded
will be calculated to take as much of the homeowner's equity as
possible.
Getting Out of the
Insanity...
If the homeowner decides to sell the property to get out of the
situation and take their equity, they will find the payoff amount (which
in the last month of the scam will take longer to get than the amount of
time left before foreclosure) strips them of their equity. That
combined with their artificially damaged credit rating helps keep the
victim trapped.
If the borrower cannot pay
the amounts demanded in the forbearance agreement, the servicer will
have one of their network of specialized law firms foreclose and the
property will be sold, typically at a county auction or through their
real estate network.
If the borrower signs the
agreement, they will soon be recycled through the process with yet more
late payments and fees. But in the terms of the forbearance
agreement, they may find they have signed away any legal protections
they may have already had, including the right to sue the servicer for
fraud or misrepresentation.
Oftentimes, the foreclosure
process is streamlined so borrowers simply do not have enough time to
save their homes by showing evidence of the servicer's misconduct.
In the past few years,
complaints against Fairbanks got the attention of the housing and urban
development, the FTC and several state attorneys general.
Fairbanks eventually settled with the FTC but admitted no wrongdoing.
They've since changed their name to Select Portfolio Servicing.
The executive VP claims they've made several changes in recent years
including a corporate ombudsman and a website that allows customers to
track the status of their loan. Because of that, customer disputes
have dropped by 87%.
What You Can Do to Avoid
Servicing Abuse...
-
Don't take on faith that your payment are
being credited. There's no law that says you have a right to a
statement or update on your loan so you must do it yourself.
-
Ask for a yearly listing from the company
as to what your loan is at now and how many of your payments have been
made.
-
Check online to see if your servicer has
online access to your account and check it monthly to ensure your
payment posted on time and correctly.
-
If your servicing is being transferred,
call your present lender and have them confirm that your loan is being
transferred. Have them provide you with the name of the bank to
who it is being transferred and get the new address of where your
payments are to be sent.
-
Do not take the letter's word for it!
Call your bank NOT the number you receive on any letter. There
have been scams with fraudulent banks sending bogus servicing
letters and collecting payments from homeowners all with no intent or
ability to post them to your ACTUAL account.
If you feel your present servicer is
engaging in any type of conduct mentioned in this article, please
contact us and your
state
attorney general.
All members on this site have signed a
Residential Mortgage Advocate™ (RMA) commitment to be totally upfront about
their fees, rates and items they will need from you.
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